a particular kind of SNF that offers
transitional care and services not
historically provided by these facilities.
In this article, these new-style SNFs
are referred to as MASNFs, and they
are providing better outcomes,
shorter lengths of stay, and fewer
rehospitalizations than traditional SNFs.
MASNFs will have a profound impact on
the long-term care industry. According
to the Centers for Medicare & Medicaid
Services, there is tremendous variance in
expense and length of stay at SNFs that
cannot be explained by a divergence in
medical conditions. As a result, payors
seek to improve care and reduce costs
by focusing on outcome measures,
lengths of stays, and rehospitalization
rates. Managed care and accountable
care organizations (ACOs) are beginning
to drive patients to MASNFs through
ever-narrowing networks, redirecting
them away from traditional SNFs with
records of poor outcomes and long stays.
As ACOs and bundled payments and
other incentives gain traction, aggregate
demand for bed days should fall by more
than 6 percent per year, resulting in a
reduction of more than $30 billion per
year in payments to SNFs by the end
of 2019. Reduced aggregate demand,
combined with market share losses
that poorly performing operators are
likely to sustain, will result in operating
losses for many of the 15,000 older
SNFs that exist today. This will lead
to widespread defaults and create
demand for creative restructuring
options in 2015 and beyond—
including closures, mergers, and other
alternatives—both in and out of court.
Importantly, the $30 billion reduction in
aggregate payments will not be spread
evenly across the entire spectrum
of long-term care providers. Newer
facilities offering modern advanced
skilled nursing care and managed by
operators that provide superior clinical
outcomes and customer satisfaction
will claim an increasingly larger
share of this shrinking market, while
older SNFs will be disproportionally
negatively impacted and risk failure.
In addition, demand for traditional
surgical and medical hospital bed days
will also fall as patients are moved
to lower cost and clinically effective
MASNFs that offer transitional care.
ACOs and managed care operators will
require hospitals to discharge patients
who previously would have remained
hospitalized after medical or surgical
procedures. Instead, these patients
will spend short convalescent stays
at lower cost MASNFs that offer care
previously available only in hospitals.
A combination of economics and
technology drives this change, as
technology allows treatment in lower
cost settings. MASNFs can be built
and operated for less than one-third
the cost of a traditional hospital. The
economic advantage of moving a patient
from a $3,000-a-day hospital bed to a
$1,000-a-day MASNF bed is compelling.
If all 36 million patients admitted to a
hospital each year substituted just one
hospital bed day for one transitional
care day, the potential savings could
exceed $72 billion annually.
Unfortunately, in many cases the only
non-hospital facilities currently licensed
to offer MASNF-level care are traditional
SNFs, but these facilities typically lack
the technology, infrastructure, or staff
capable of providing this additional level
of care. SNFs that are unable to transition
to providing higher levels of care risk
being left behind with few options other
than closure, sale, or restructuring. Thus,
despite the glut of older SNFs, there will
simultaneously be significant demand
for, and a serious shortage of, MASNFs
capable of delivering transitional care.
Attracting the necessary investment
in MASNFs and clinical programs is
challenging given the uncertainty
surrounding reimbursement and
regulation in the marketplace.
The barriers to significant MASNF
construction will include how
quickly ACOs, CMS, and managed
care can exert economic influence
over providers. In states with
certificate of need requirements,
this process will likely move even
more slowly, but the economic and
clinical realities are compelling.
Construction of 100,000 new MASNF
beds will be required to handle demand
over the next 10 years as ACOs and
incentives gain traction and funnel
former hospital patients into these less
costly facilities. At an average cost of
$100,000 per bed, at least $10 billion in
new MASNF construction will be needed.
However, with an estimated savings of
nearly $70 billion per year, the return on
investment would clearly justify the cost.
In the coming years, a combination of
regulatory changes, including potential
new forms of licensing and revised/
relaxed certificate of need requirements,
will be hotly debated by state legislatures.
While state lawmakers are rewriting
the rules, the markets will be grappling
with extensive restructuring of older
SNFs and development of MASNFs.
Need for Dementia Care
The number of people who need care
for dementia is exploding, and the
U.S. is not prepared to address these
increased medical requirements.
One in eight Americans over 65
currently is afflicted by some form of
dementia. Demographics will provide
additional pressure on the long-term
care system as the proportion of the
U.S. population over 65 continues to
increase, fueled by aging baby boomers.
The number of people with dementia
is expected to more than double over
the next 25 years, from the 5 million
afflicted currently to 11 million by 2040
(“2012 Alzheimer’s Disease Facts and
Figures,” Alzheimer’s Association).
These individuals will likely live an
average of more than 10 years after the
onset of the disease and be afflicted
with at least five comorbidities,
making them medically complex.
There are currently an estimated 31,100
assisted living facilities with 972,000
beds supplying long-term services
and support (LTSS), including room
and board, basic health monitoring,
incontinence care, social and
recreational activities, special diets,
laundry, and other ancillary services.
These facilities are not licensed or
designed to care for individuals who
need regular nursing care, yet a growing
number of increasingly frail patients
are beginning to occupy these beds
at an average rate of $42,600 per year.
Those with dementia pay even more—
over $57,000 per year—because they
require additional services, such as
care management and monitoring,
assistance with daily living activities,
housekeeping and laundry, medication
management, and transportation.
Approximately 20 percent of patients
living in assisted living facilities are
covered under the Medicaid Section
1915(c) waiver program, which permits
the use of state funds at community-based facilities that traditionally could
only receive private pay. The program
is provided by 35 states. Collectively,
Medicaid is paying $1.7 billion annually,
or roughly $31,000 for each of the
54,000 Medicaid beneficiaries in 12,000